Zuora Raises $50M - And the Stakes for the Subscription Economy and CRM

Last week Zuora, creators of one of the leading billing and subscription management platforms, announced raising $50 million in a Series E round of funding, bringing the total amount of capital raised to $132.5 million. From an individual company perspective, this gives Zuora more ammunition in its war chest to build on their leading position and allows them to remain in the driver’s seat of one of the most disruptive business changes of the past few decades.

While most of the business world is still primarily focused on trying to figure out how to leverage mobile, social and cloud technologies to promote and market their wares to mass audiences, Zuora is laying the groundwork for smart companies to create customer-centric business models that appeal to the modern consumer. And yes it’s important for companies to figure out the right mix of social, mobile and cloud to connect with customers and prospects, without updating out of date business models that are out of step with consumer expectations and lifestyles, all the social and mobile marketing in the world is not going to help you build valuable customer relationships in the long run.

According to a few stats by analysts firms, the growth in subscription based offerings is already accelerating. Gartner predicts by 2015 35% of Global 2000 companies will generate revenue through subscription services and revenue models, with 40% of media and digital product companies using subscription services for fulfillment, billing and renewals. And Forrester predicts the global market for SaaS will grow from $21.2 billion in 2011 to $92.8 billion in 2016. So while we’re still in early days with this, it won’t take too long to get beyond this stage the way companies are moving.

With this additional money Zuora will no doubt be able to add even more depth and breadth to their platform, but they will also be able to further evangelize the concept of The Subscription Economy, and the promise it holds for companies that get it. In a conversation a few years ago with Zuora CEO Tien Tzuo, he explained the difference between the traditional, product-based economy we grew up with, and the Subscription Economy:

“It’s a whole different way of thinking. The old way is a 20th-century way of thinking anchored around manufacturing, where you think about your product and how many units you can ship. The new way of thinking starts with the customer:

How many customers do I have?

How many customers did I have at the start of the year?

How many customers have I acquired?

How many customers have I lost?

What is my average revenue per customer?

Perhaps if I am more sophisticated: “How do I segment my customers into high, medium and low value customers? How do I move them up that chain? How do I get a greater share of wallet?” It’s a way of thinking of the customer as a user of your service on an ongoing basis, and coming up with subscription-based plans that allow them to opt for the plan that best suits their needs at that moment.”

So instead of thinking about how many units you have to move – which has a very transactional connotation to it, the SE approach really focuses on relationship over transactions. But in the end the longer you are able to extend the relationship the more transactions you’ll end up having. And this is why it’s important to make the transition and look for opportunities to turn one-off sales deals into a chance to have more ongoing, reliable, consistent relationship with more customers. By focusing on creating programs that customers can subscribe to and consistently delivering enough value for them to stay “subscribed” allows you to focus more time on transitioning customers to loyal customers, and loyal customers to brand advocates. The more you’re able to focus on these transitions, the less time and money you have to spend on more costlier customer acquisition activities. Not to say won’t have to drum up new leads, but it’s just less expensive to keep good customers longer than it is to go out and find new ones.

The reality is that Zuora and their Subscription Economy philosophy is as much about modern CRM philosophy as anything else. SE really is about how companies react to customer expectations as they use the latest technology to their advantage. Now customers want companies to bend their organizational practices to meet their needs for flexibility and speed. They want flexibility in how things are delivered to them, and how things can be paid for. And if you give them that – and can continue to give them that as their needs and expectations change over time – then you have a really good chance of winning them over.

Netflix is a great example of not just using the latest technology, but creating flexible customer-centric business models to stay connected with customers keeping them subscribed. It didn’t happen without missteps, as they almost killed their business with a near-tragic misreading of how customers would react to a change in their pricing model, which came along with a change in their business model (think back to when they first offered streaming videos). But they were able to overcome that by constantly adding more value to their service:

Streaming videos instead of waiting to get them in the mail

Adding more videos to the streaming library

Making videos available to streaming from popular gaming devices

Making videos available via mobile apps on phones and tablets

Optimizing download times for most popular content in each local market to speed up delivery

Developing their own original new content (House of Cards, Orange is the New Black, etc)

By continually doing things to up the value of a membership, Netflix gives customers more reason to stay subscribed, and to take their relationship with them to a higher level – one that increases the likelihood of them staying around longer. And that is what CRM is all about, and why so many companies are being created with this philosophy at its core.

To hear more about where Zuora thinks we are headed with the Subscription Economy, here’s a video from Social Biz Atlanta 2013 of their CMO Brian Bell breaking things down, with a great assist from Denis Pombriant – one of the leading CRM analysts in the universe. You may also want to check out Denis’ take of the Zuora news.